Shropshire Star

Shropshire consumers told to enjoy inflation dip

Businesses and consumers in Shropshire could enjoy greater spending power after inflation fell to a 15-year low, it was claimed today.

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The 0.5 per cent rate announced this week, driven by price wars in supermarkets and the effect of the plunging oil price on fuel costs, will mean the governor of the Bank of England, Mark Carney, must write to Chancellor George Osborne to explain the shortfall from its two per cent target.

For motorists, it is like a dream.

Every day you pass the filling stations, the price of fuel has dipped yet further. It takes some getting used to this good news on the price of motoring. Only back in 2012 diesel briefly hit as much as 150.9p a litre at one Madeley filling station in Telford.

Not only are falling prices the equivalent of a hefty tax cut, with two-car families saving over £50 a month compared to the summer, but they affect more or less everything else, as the rock-bottom inflation figure demonstrates.

Businesses are spending less on transport costs, and the benefits are starting to be reflected in energy prices and costs at the supermarket.

There is though a constant in the economy, and that is that some people will find reasons to worry.

With inflation at half a per cent, some are warning darkly about the dangers of deflation.

The answer to this is a simple philosophical one.

When the sun shines, make sure you enjoy it, because one day the clouds will roll in again.

Falling petrol prices are good news and something to celebrate.

The future will bring what the future will bring.

But in the meantime . . . fill up, fill up, fill up!

Low inflation always sounds like great news for consumers. Spending has been stretched for too long because inflation has soared well ahead of wages, so to finally have the numbers the other way round feels like a blessed relief.

But a long period of seriously low inflation, or even deflation, which is occurring in the eurozone at present, can have a more serious impact on the economy, particularly if it's based on factors inside the country.

But the message from this week's rates announcement appears to be a more positive one: just enjoy it.

Shropshire Chamber of Commerce chief executive Richard Sheehan said: "A lot of factors in this low inflation have been around fuel costs and food, and anything that puts money in consumers' pockets is good for business as it has a knock-on effect on spending, particularly in the high street.

"Low fuel costs also help with transportation of goods, so for companies that provide goods that helps them save on costs, meaning they can adjust prices to make themselves more attractive, so the impact of fuel almost has a double hit.

"Clearly now we are looking for these actions to be reflected by the energy companies."

However, Chris Jones, the centre director of Telford Shopping Centre, said the squeeze on incomes had been so sustained that the jolt in the opposite direction would not do enough to free up significant spending.

"While commentators are debating whether December's historically low interest rate is good news or bad, I would argue that it will have no noticeable impact whatsoever for the retail sector," he said.

"Many retailers have faced such tough times over recent years, with several big names being wiped from UK high streets altogether, there is a long way to go before the economy fully recovers to where we were back in 2008."

In a speech to the Royal Economic Society, Mr Osborne said: "In the eurozone the debate has understandably turned to the dangers of deflation – the risk of a self-reinforcing spiral where economic activity falters, consumers defer purchases as prices fall and nominal debt burdens become ever harder to manage.

"Rising real incomes, a recovery spreading to all parts of our economy, and family budgets that can stretch that little bit further – let's celebrate these effects of low inflation, not fear them."

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